A rebound in the U. of Michigan Confidence survey may generate a further decline in the EUR/USD as it raises the fundamental outlook for the U.S. economy.

What’s Expected:

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Why Is This Event Important:

Indeed, a further improvement in household sentiment may spur a greater dissent within the Federal Open Market Committee (FOMC), and the Fed may show a greater willingness to normalize monetary policy sooner rather than later as the central bank hawks see a faster recovery in the second-half of 2014.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (MAR)

$15.500B

$17.529B

Change in Non-Farm Payrolls (MAY)

215K

217K

Average Hourly Earnings (YoY) (MAY)

2.0%

2.1%

The ongoing pickup in employment paired with the uptick in wage growth may generate a marked rebound in consumer confidence, and a positive print may spur a bullish reaction in the USD as it raises the outlook for growth and inflation.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (MAY)

0.6%

0.3%

Personal Consumption Expenditure Core (YoY) (APR)

1.4%

1.4%

Consumer Price Index (YoY) (APR)

2.0%

2.0%

However, we may see another unexpected downtick in the confidence survey as household face sticky prices, and a dismal U. of Michigan print may dampen the appeal of the greenback as it drags on interest rate expectations.

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How To Trade This Event Risk(Video)

Bullish USD Trade: U. of Michigan Survey Climbs to 83.0 or Higher

Need to see red, five-minute candle following the release to consider a short trade on EURUSD

If market reaction favors a long dollar trade, sell EURUSD with two separate position

Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward

Move stop to entry on remaining position once initial target is hit; set reasonable limit

Bearish USD Trade: Household Sentiment Continues to Deteriorate

Need green, five-minute candle to favor a long EURUSD trade

Implement same setup as the bullish dollar trade, just in the opposite direction

Impact that the U. of Michigan Confidence has had on EUR/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAY P

2014

05/16/2014 13:55 GMT

84.5

81.8

-8

-18

May P 2014 U. of Michigan Confidence Survey

The U. of Michigan Confidence survey unexpectedly weakened in May, with the index slipping to 81.8 from 84.1 the month prior. Despite the weaker-than-expected print, the EUR/USD struggled to hold above the 1.3700 handle, with the pair closing the day at 1.3692.